Valuing a Toll Road Operator

There are a few other factors to keep in mind:

• While the general consensus is that toll roads are stable, that's not necessarily true. Many toll roads that lead towards discretionary locations (beaches, holiday areas, resorts, etc.) were hit hard during the recession. Also, many toll roads were built under the assumption that a large residential area would spring up around them, leading to traffic. When the housing market collapsed many roads ending up having little traffic because the surrounding towns were never fully developed.

• Not sure if you'll have this detail, but when a toll road operator negotiates with the surrounding local government, oftentimes they are able to get exclusivity for a certain area (e.g., no other road with more than four lanes for a certain mile radius for a certain amount of years). Having this agreement can be everything since oftentimes a new road can cut out many of your potential traffic payers.

• When signing a lease with the local government, it usually also stipulates a rate at which you're allowed to hike toll prices as well as sometimes mandated capex spending to maintain the roads

Other than that, toll roads are pretty simple since your only source of income is tolls and you have minimal capex every once and a while. Modeling traffic though is extremely difficult and you'll often see professional traffic consultants get it wrong time and time again (not just the magnitude of growth but also the direction of growth).